Rachel Reeves has said Britain can defy gloomy economic forecasts after the fiscal watchdog infuriated ministers by predicting a productivity downgrade would leave her with a £20bn gap to fill in her forthcoming budget.

The chancellor said she was “determined not to simply accept the forecasts” – which increase the likelihood she will break a key Labour manifesto pledge not to raise income tax – but would instead prove the predictions wrong.

Writing in the Guardian, Reeves acknowledged her decisions at next month’s budget “don’t come for free and they are not easy”, after this newspaper revealed she is considering the tax hike to help reduce a multibillion-pound shortfall.

The Office for Budget Responsibility is expected to cut its estimates for the UK’s economic productivity by 0.3 percentage points, the Guardian understands, creating an even tougher economic backdrop.

As a result, Reeves is facing one of the most difficult budgets in recent years, while she also has to account for reversing the winter fuel cut, abandoning cuts to welfare payments and an expected move to end the two-child benefit cap.

However, the Treasury is hopeful that by the time of the budget, the OBR could factor in lower borrowing costs and marginally higher than expected growth, as well as positively “scoring” policies such as planning reforms and trade deals, to cut the final fiscal gap.

In her article on Tuesday, Reeves wrote: “I’m going to be candid now that the productivity performance we inherited from the previous Conservative government and since the financial crisis has been too weak.

“Austerity, a chaotic Brexit and the pandemic have left deep scars on the British economy that are still being felt today. But the task facing our country – facing me as chancellor – is not to relitigate the past or let past mistakes determine our future.

“I’m determined that we don’t simply accept the forecasts but we defy them, as we already have this year. To do so means taking the necessary choices today, including at the budget next month.”

The IMF modestly increased its forecast for economic growth in the UK for this year, from 1.2% to 1.3%. Over the year as a whole, the economic body expects the UK to be the second fastest-growing economy in the G7.

Reeves is understood to be furious that the OBR has chosen her second budget to downgrade the productivity figure, rather than before the 2024 general election, when it would have prevented Jeremy Hunt from cutting taxes by £20bn.

The Institute for Fiscal Studies thinktank has said that each 0.1 percentage point downgrade in the productivity forecast would increase public sector net borrowing by £7bn in 2029-30, so a 0.3 point cut could create a £21bn hit.

However, Reeves said the UK’s economic foundations remained strong – citing five interest rate cuts, wages growing faster than inflation and investment in public services and infrastructure to boost growth – and criticised Reform UK and the Tories for talking down the country.

“They are determined to talk of an economy that is broken because that is the only way their politics can breathe. They talk of a Britain that is in a permanent state of decline because that is the height of their ambitions for it. I reject both claims,” she said.

In a further rejection of Reform UK’s policies, the chancellor also ruled out a return to austerity at the budget – although some spending cuts are expected – while she told leftwingers who argue for higher borrowing that “there is nothing progressive” about financing debt interest.

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However, she acknowledged the country continued to face steep challenges. “I don’t need a spreadsheet to tell me that too many working people in Britain feel the economy is unfair and does not work for them, with the cost of living still bearing down on family budgets,” she said.

“I don’t need a graph to tell me that the world has become a more dangerous and uncertain place, pushing up the cost of borrowing for countries across the world. And no one needs to be told that the economy has not been as productive as it could have been over the past 14 years.”

Some Treasury and No 10 advisers believe that raising income tax – focusing on the wealthy – may be the only way to make sure that Reeves raises enough money not to have to come back for further rises this parliament. After last year’s budget she had said none would be necessary.

But the chancellor is understood to be nervous about the political consequences of such a decisive abandonment of the party’s pledges, especially given she broke them to raise national insurance last year.

At gathering of business leaders in Saudi Arabia this week, Reeves also said she wanted to ensure the UK had “sufficient headroom” against her self-imposed fiscal rules to provide resilience against future shocks, implying that last year’s £9.9bn buffer was not enough.

The chancellor is also is well aware of the harm inflation is inflicting on UK households – and on Labour’s support – and has promised a range of measures in the budget to “bear down on” rising costs, which could include lowering household energy bills.

She told the Riyadh investment summit on Tuesday that Brexit is partly to blame for high inflation in the UK, as she made the case for rebuilding ties with the EU. Attributing the UK’s vote to leave to “a rejection of open borders”, she said there was now public support for a reset with the bloc.

“Inflation is too high in countries around the world, including in the UK, and one of the reasons for that is that there’s too much cost associated with trade with our nearest neighbours and trading partners,” she said.